The Phil Flynn Energy Report
The Ayatollah Strikes Back!
Oil and gold went on a risk on/risk off the ride after Iran struck back at U.S. military bases. The initial reaction to the event, or as Iran called it “Operation Martyr General Soleimani”, was a fear-driven rally in gold and petroleum and a sharp down move in stocks. Fears that this attack could lead to the all-out war between Iran and the U.S. caused many to run for cover.
Yet President Trump tweeted that “all is well” and despite Iranian claims, there seem to be no causalities. There are reports that Iran called Iraq to tip them off to the attack, which meant the info got to the U.S. so it appears that Iran wanted to make sure there were no causalities. Iran, despite its rhetoric, is in no position militarily or economically to go to war with the U.S. yet at the same time, they wanted to show force to play to the home crowd and save face.
For the crude oil market it is significant that the missiles were aimed at military targets as opposed to oil facilities, causing a sigh of relief that, at least for now, petroleum is out of the crosshairs. Yet is this attack going to be enough to appease the hardliners in Iran and the section of their population that is angry about the death of General Soleimani? Still, while Iran’s Supreme Leader Ali Khamenei suggested the attack was not enough of a response, he suggested that now the ball is in President Trump's court leaving the door open to negotiation.So it is clear that Iran does not want to escalate the situation and neither does President Trump. That may assure us that Iran will behave and it may mean to avoid the appearance of escalation. Iran will behave better than they did before the killing of their beloved General Soleimani.
Oil risk premium was already on the rise as tanker rates, and insurance rates were on the rise so the risk premium may not go away altogether but may not return to the highs unless oil facilities are attacked. This might end what had been a period of increasing Iranian provocations. If that is the case, the message sent to the Iranians by President Trump's killing of Soleimani could be viewed as a turning point and an opening to negations in the US-Iranian relationship. It would also be a win for US foreign policy.
So back to the supply and demand. The American Petroleum Institute reported that crude stocks fell by a much larger than expected 5.95 million barrels. Yet gasoline supply rose 6.7 million barrels and distillates by 6.4 million barrels. The API may be catching up to the EIA, so stay tuned for the Energy Information Administration report.
Natural gas is trying for a bottom this morning. Is it because of the weather? Bret Walts at Bamwx says that, "We have a difficult scenario for the late week two period, with the European data now trending much colder to end the period. However, the GEFS keeps the southeast ridge around and keeps the Eastern US warmer than normal. We do believe it can get cooler for a time, albeit the EPS may be too fast with this transition. Until we do see this transition, we continue to deal with major Eastern US warmth in the next ten days. Even if we do get this cooler pattern to develop late-week two into week 3, we're not anticipating major cold for big heating demand areas and the pattern can still see up/downs through late January.”
Don’t miss out on my wildly popular trade levels on all major markets as well as special subscriber-only updates. Call me at 888-264-5665 or email me at firstname.lastname@example.org.